Carbon price two years on: not a wrecking ball

Tom Arup and Lisa Cox

Two years after the carbon tax came into force market economists say the scheme has not been the ‘‘wrecking ball’’ once predicted by Prime Minister Tony Abbott. But what role it has played to date in cutting emissions is cloudy.

The carbon tax is set to be repealed in the coming weeks after the Palmer United Party gave its support last week to the government’s plan to abolish the scheme.

Fairfax Media asked experts to examine what now appears to be Australia’s short–lived experience of carbon pricing - which was introduced two years ago today - and reflect on what it has meant for the economy and the environment.

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AMP Capital chief economist Shane Oliver said it was hard to say the carbon tax had had any negative macro–economic impacts on Australia such as on growth and employment.

‘‘It was a bit like when the GST was introduced. There was predictions of doom and gloom and then it came in and we all got used to it,’’ he said.

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HSBC chief economist Paul Bloxham agreed the tax did not have much impact on the broader economy, in line with the estimates before its introduction.

One potential outcome of the carbon tax to the economy was not from the policy itself but rather a dampening of business confidence as a result of the political uncertainty surrounding its establishment and now repeal, Mr Bloxham said.

On the comparison to the introduction of the GST, Mr Bloxham said that change had had a much larger and distinct impact on the economy than the carbon tax.

Chris Caton, BT Financial’s chief economist, also said “it’s very difficult to find any macro effects” from the carbon tax, with the exception of a small increase in the consumer price index for the September quarter in 2012, just after it was introduced.

“Again it’s not clear how much was carbon tax and how much was other factors,” he said.

Dr Caton said while the carbon tax ‘‘was just one part of that story’’, consumers were becoming more responsive to electricity price increases and “you’d have to say it’s doing its job”.

Senior economist at BIS Shrapnel, Richard Robinson, said he did not believe the carbon tax had had any impact on unemployment, which was 5.2% in June 2012 when the tax began and 5.8% in May 2014.

He said while there may have been some marginal impacts on energy intense industries, the high exchange rate, price rises from electricity network charges and weakening demand in 2012-13 were much bigger factors, he said.

This financial year the tax is projected to bring in $6.9 billion in revenue from 371 companies. Last year $6.6 billion was paid by 348 companies. The revenue was used to compensate households, assist energy intensive industries and fund clean energy and biodiversity programs.

The tax first came into effect on July 1, 2012 when it set a charge of $23 per tonne of carbon dioxide emitted. In 2013-14 that price rose to $24.15 and as of Tuesday it will rise to $25.40.

If it is not repealed then it will move to an emissions trading scheme from July 1, 2015, with the price set by the market and likely to fall into line with Europe's price of about $6.

Since the carbon tax began Australia’s annual greenhouse gas emissions, excluding land sources, have fallen one per cent, or 5.2 million tonnes of carbon dioxide equivalent.

The largest decline in emissions over that time have come from electricity generation, with emissions falling from the sector by 10 per cent since the carbon tax started. But those gains have been offset by rises in other areas such as natural gas extraction.

Dr Hugh Saddler from analysts pitt&sherry said it was clear the carbon tax had encouraged greater production of hydro electricity since came into force, but operators were running down their water storage to take advantage and would eventually have to cut back.

Dr Saddler said the carbon tax had played a role in the 4 per cent reduction in electricity demand electricity since June 2012, but was only one of a range of factors. He said the bitter political debate from 2010 about the carbon tax and its impact on electricity prices had likely made households more conscientious of their power use, contributing to the fall in demand.

Tony Wood, Energy Program Director at the Grattan Institute said he was sceptical the carbon tax had done very much at all to date. He said it was undeniable emissions were down and the electricity generation mix had changed, but he said other factors such as large industrial closures and the renewable energy target were having more impact.

But he said the scheme should be retained because when the world gets it act together on reducing emissions – which some parts of the world arguably are he said – then emissions trading will be the lowest cost way to address the problem.